This chapter examines educational opportunity and the changing relationship between education, employment, and income in Israel between 1995 and 2008.

The following questions are addressed: Did the expansion of the Israeli education system during this period contribute to more equal educational opportunity among socioeconomic groups? And did the returns to education, in terms of income and occupational prestige, increase or decrease? The study is based on aggregate census data for two periods, 1983-1995 and 1995-2008. The sample included native-born young Israelis, both Jewish and Arab Israeli. The data show that despite considerable educational expansion, educational inequality among different socioeconomic groups increased significantly. Moreover, occupational prestige at all education levels except the very lowest decreased on average, especially at the highest levels of education. The latter change is explained by the fact that the demand for professional, academic, technical, and managerial workers grew only modestly leaving many newer graduates out of the field. A more encouraging finding is that the average income for young Israelis grew during the period. Much of this growth was due to the expansion of higher education, which increased the proportion of high-earning, highly educated individuals in the overall population. Nevertheless, the higher educated earn less today (relative to those without an education) than they did in 1995, that is, the economic returns to education have declined.